The BCG matrix is a tool that allows for analysis of the cost effectiveness of different products of an e-commerce to facilitate decision making. Among other things, it will help you to define the ideal size for the product catalog of your e-commerce. This is because, if you know how profitable your items or services are, you will be able to easily define if it convenient to expand, reduce, or maintain the catalog. The importance of using this tools resides in that the size of the catalog will depend on factors like the configuration of the e-commerce, the marketing strategy, or the difficulty of the logistics. Furthermore, the BCG matrix also can help you in fixing prices based on the cost effectiveness of every product. Given its benefits, from Minderest we explain to you what this classification system is based on.
The BCG matrix is characterized by classifying items based on the market growth rate and the penetration rate of each product, namely, the total clients that it buys within a determiend population. These two factors, shown in the X and Y axes, allow for classification of products into 4 categories:
- Star products
- Unknown products
- Cow products
- Dog products
Star products, the most sold of the e-commerce
These are those articles that have a high penetration rate in the market and whose sales grow rapidly. Due to their good reception, they require high marketing investment to maintain these sales levels. So they are not the products that generate the greatest profits for the business.
If we relate it to the ecommerce’s catalog size, the ideal is to define the sales strategy apart from a few star products that you know function best and serve as a claim to acquire users. After, you can go expanding your product supply according to your growth expectations and the needs of every buyer persona.
Unknown products, with a doubtful cost effectiveness
Included in this grown are the products that were recently launched to the market and those that you do not have conclusive data about. They usually have a low penetration rate, due to their scarce time in the market, but an ample growth potential. So, in this category there would be the new products that expand the catalog. Given that they also require an ample investment in marketing, it is advised that you perform tests on the market or you survey potential clients before your launch to try to estimate their level of acceptance.
Cow products, the most consolidated
These are the most profitable for the e-commerce, they are rarely removed from the catalog and that are affected by the seasonality. Factors that you should consider before you expand market. Cow products have a high penetration rate and scarce possibilities for growth. But these are not needed since they provide high profit margins. You can ind many examples of cow products in the food sector, like Coca Cola, very extended and consolidated whose sles require a relatively low investment in marketing and publicity.
Dog products, the weakness of the e-commerce
The dog product is the ultimate state that products can pass through in a e-commerce within the BCG matrix. In it is encompassed items in decline, without growth possibilities, with a low penetration rate in the market and with a low purchase volume. Generally, through a time period, businesses decide to retire these products, especially if they start to generate losses.
The categorization of the ecommerce’s products in these four groups will help you to decide whether or not to invest in new items to foment a greater growth, always looking to have more cows, some stars and unknowns, and no or very few dogs. The cost effectiveness of each of these will depend on the fixed price. In this sense, if your cow products have a price higher than what users are ready to pay, your profit margin will increase.
The negative side is that not all articles evolve in the same manner and the market can change suddenly because of external factors. Because of this it is important to adjust the BCG matrix to a periodic form and have other reference indicators. Among those, you can also fix yourself in the sales catalog of your competition. Through these automated tools of product catalog analysis you can study your items on sales, stock and brands and discover which of your cow products you can include in your catalog.